Debt exchanges surge as companies restructure -S&P

NEW YORK Aug 14 (Reuters) - Distressed debt exchanges have ballooned to over four times last year's total as troubled companies worldwide restructure their debt out of court, Standard & Poor's said in a report on Friday.

Worldwide, 63 issuers have completed distressed debt exchanges so far this year, up from 15 in all of 2008 and just four in 2007, S&P said.

In a distressed debt exchange, investors swap their debt for new bonds, often with longer maturities, and sometimes receiving only a fraction of the original value of their investment. The debt restructurings allow companies to avoid bankruptcy or get more time to pay debt back.

Rating agencies typically count debt exchanges as defaults when investors receive less than the face value of bonds and when the company would have defaulted without the exchange.

Debt exchanges have now topped bankruptcies as a cause of defaults, according to S&P. Year to date, 52 of this year's defaults were caused by bankruptcies, up from 49 in all of 2008. The study included all companies rated by S&P within the last 12 months, according to S&P managing director Diane Vazza, lead author of the report.

About 67 of this year's defaults were caused by missed interest payments, S&P said.

A global recession and collapse in earnings have sent corporate defaults surging to nearly four times last year's pace. Worldwide, 197 issuers have defaulted this year, up from 52 in the same period last year, led by 140 in the United States, S&P said.

S&P has forecast that the default rate on junk bonds will rise to 13.9 percent by mid-2010 from 9.25 percent at the end of June.

Debt exchanges have been costly. Investors have received less than 50 cents on the dollar on many exchanges and in a few cases about 10 cents, S&P said in a separate report in May.

Exchanges are still often preferable to even lower recovery prospects in a drawn-out bankruptcy, S&P said. (Reporting by Dena Aubin; Editing by James Dalgleish)